Shares in oil and gas explorer EnQuest dropped five per cent on Thursday on news a potential farm-out deal on the Kraken development has fallen through.

Earlier in the month North Sea focused EnQuest reported talks on a potential 20 per cent farm-out deal with Delek Group were on-going, but has now confirmed both parties “have ultimately been unable to reach an agreement and those discussions have now terminated”.

EnQuest estimated earlier in the month the gross full cycle project capex cost of the Kraken development, which it is joint developing with Cairn Energy, will be $2.6 billion (£1.95 billion).

A deal with Delek Group was estimated would have cut EnQuest's debt pile by as much as $190 million.

The group also noted it had slashed operating costs to $23 a barrel in the first half and forecast operating costs would be cut by between $30 million to $40 million “in each year” if sterling remains weak against other currencies.

EnQuest said a lower valued sterling over the longer term would have a “substantial positive impact on income in 2017 and 2018”.

The company stated earlier in the month the Kraken development is “continuing on schedule” with sail away of the Kraken Floating Production Storage and Offloading (FPSO) vessel expected in the second half of 2016 ahead of first oil in the first half of 2017.

The group also lowered its full year production guidance to between 42,000 and 44,000 barrels a day after a slower than expected start from the Alma/Galia field.

EnQuest also noted debt discussions “concerning proposals for accommodations including to amend the structure, covenants, interest payment obligations, maturities and other aspects of its debt” are continuing and revolving credit facility lenders – accounting for $956.3 million of overall debt - “continue to be supportive and have provided waivers when required”.

Share in EnQuest recovered from early lows on Thursday and were down 2.6 per cent in afternoon trading.